Housing recovery far from home and dry

Housing – both new building and renovations – should be worth about $70 billion a year to the economy.

Ramp it up a bit and the extra activity in the industry, with lots of new work for tradesmen and material suppliers, could help cushion the fall in national income as the mining investment boom grinds down.

But it will not happen overnight. In fact, even the best-informed question how far the housing recovery can run.

Reserve Bank of Australia assistant governor
Christopher Kent
told the Australian Institute of Building last month that demand in the established housing market was “strengthening gradually" and would “underpin further moderate growth" in dwelling construction. “However, it is hard to know how strong this pick-up is likely to be," Kent said.

Despite the excitement about housing – the low mortgage rates, better prices for established homes and the jump in approvals for higher density projects – new building and renovation activity is proving hard to stimulate.

The latest Australian Bureau of Statistics housing approval numbers, to be released on Thursday, are expected to show a 2.5 per cent rise in approvals in February after a surprise decline in January.

This is welcome, as far as it goes. But overall, work on the ground remains patchy. Tradesmen, usually hard to find, were in oversupply at the end of last year, the Housing Industry Association’s Trade Availability Index shows.

Material suppliers were similarly affected. Decorative paint sales dropped by about 4 per cent in 2012.

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DuluxGroup managing director
Patrick Houlihan
bettered the market in 2012 but he expects 2013 to be “relatively subdued".

Sales of new homes actually fell in February – by 4 per cent for detached housing and 11 per cent for apartments – the HIA’s survey of big builders shows.

HIA senior economist Shane Garrett says the result – after four months of solid improvement, to a figure that is still half the sales of early 2010 – is “a reminder of how delicate the nascent recovery in the housing industry is".

Kent, citing the Reserve Bank’s liaison with the industry, told the AIB that demand for new housing had been more positive. “However, our contacts note that conditions still remain relatively subdued in most states," he said.

“In particular, they report that prices for the construction of new dwellings have been held down in response to weak demand, with discounting still reported across the market."

Kent also noted “instances of some earlier sales made off the plan falling through ahead of settlement, apparently due to caution by lenders regarding valuations and strict lending practices for new developments".

Despite the interest on a renovation show like The Block, spending on alterations and additions, worth over $30 billion in 2010-11, has fallen about 7 per cent in the last t two years, the HIA says.

Blame falling house prices, lower borrowing and economic uncertainty.

All should change as house prices recover. But as the table shows, private dwelling investment as a proportion of gross domestic product is well short of earlier highs and the outlook, from the HIA, is for pretty modest growth.

Private forecaster BIS Shrapnel is equally wary, forecasting a 5 per cent increase in housing starts this financial year and just a 3 per cent increase in 2013-14. “Housing construction will not fill the gap [of falling resources investment] in the next 18 months, but by 2015 we expect that to be the case," says BIS associate director
Kim Hawtrey
.

“New housing will be rising in NSW, Western Australia, Queensland and the Northern Territory. But it will be falling in the rest, most importantly in Victoria – and Victoria is big enough to make a difference," Hawtrey says.

The emphasis on multi-unit work also has economic implications, says MacroPlan manager of economics in NSW,
Jason Anderson
.

Detached houses, each with a roof, and fencing and driveway, have a 33 per cent greater build value than apartments, he says. And because of the lags with apartments, the work could be falling this year, just as approvals rise.